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Are Preferential trade Agreements with Non-trade Objectives a Stumbling Block for Multilateral Liberalization?

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  • Lim“o, Nuno

    (University of Maryland)

Abstract

Increasingly, in regional agreements, large economies offer lower trade barriers in exchange for cooperation in environmental, intellectual property and other issues by small economies. What is the effect of such agreements on multilateral trade liberalization? We show that, even in the absence of trade creation or diversion, regional agreements increase the cost of multilateral tariff reductions. Such reductions decrease the threat large countries can use in regional agreements causing a loss in regional bargaining power. By explicitly modeling the interaction between regional and multilateral negotiations we show that this result is due to the WTO's most-favorite nation rules and analyze the welfare effects of strengthening and weakening them. Moreover, we show that "deepening" duty-free regional agreements requires increases in multilateral tariffs.

Suggested Citation

  • Lim“o, Nuno, 2002. "Are Preferential trade Agreements with Non-trade Objectives a Stumbling Block for Multilateral Liberalization?," Royal Economic Society Annual Conference 2002 129, Royal Economic Society.
    • Handle: RePEc:ecj:ac2002:129
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    1. Bond, Eric W. & Syropoulos, Constantinos & Winters, L. Alan, 2001. "Deepening of regional integration and multilateral trade agreements," Journal of International Economics, Elsevier, vol. 53(2), pages 335-361, April.
    2. Horn, Henrik & Mavroidis, Petros C., 2001. "Economic and legal aspects of the Most-Favored-Nation clause," European Journal of Political Economy, Elsevier, vol. 17(2), pages 233-279, June.
    3. Arvind Panagariya, 2000. "Preferential Trade Liberalization: The Traditional Theory and New Developments," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 287-331, June.
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    5. Carlo Perroni & John Whalley, 2000. "The new regionalism: trade liberalization or insurance?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 33(1), pages 1-24, February.
    6. Limao, Nuno, 2005. "Trade policy, cross-border externalities and lobbies: do linked agreements enforce more cooperative outcomes?," Journal of International Economics, Elsevier, vol. 67(1), pages 175-199, September.
    7. Lisandro Abrego & Carlo Perroni & John Whalley & Randall M. Wigle, 2001. "Trade and Environment: Bargaining Outcomes from Linked Negotiations," Review of International Economics, Wiley Blackwell, vol. 9(3), pages 414-428, August.
    8. Cebi, Pinar & Ludema, Rodney, 2002. "The Rise and Fall of the Most-Favored-Nation Clause," Working Papers 15853, United States International Trade Commission, Office of Economics.
    9. Fernandez, Raquel & Portes, Jonathan, 1998. "Returns to Regionalism: An Analysis of Nontraditional Gains from Regional Trade Agreements," The World Bank Economic Review, World Bank Group, vol. 12(2), pages 197-220, May.
    10. Giovanni Maggi, 1999. "The Role of Multilateral Institutions in International Trade Cooperation," American Economic Review, American Economic Association, vol. 89(1), pages 190-214, March.
    11. Wilfred J. Ethier, 1998. "Regionalism in a Multilateral World," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1214-1245, December.
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    1. Limao, Nuno, 2005. "Trade policy, cross-border externalities and lobbies: do linked agreements enforce more cooperative outcomes?," Journal of International Economics, Elsevier, vol. 67(1), pages 175-199, September.
    2. Nuno Limão & Marcelo Olarreaga, 2006. "Trade Preferences to Small Developing Countries and the Welfare Costs of Lost Multilateral Liberalization," The World Bank Economic Review, World Bank Group, vol. 20(2), pages 217-240.
    3. Karacaovali, Baybars & Limão, Nuno, 2008. "The clash of liberalizations: Preferential vs. multilateral trade liberalization in the European Union," Journal of International Economics, Elsevier, vol. 74(2), pages 299-327, March.
    4. Karacaovali, Baybars & Limao, Nuno, 2005. "The clash of liberalizations : preferential versus multilateral trade liberalization in the European Union," Policy Research Working Paper Series 3493, The World Bank.
    5. Bagwell, Kyle & Staiger, Robert W., 2010. "Backward stealing and forward manipulation in the WTO," Journal of International Economics, Elsevier, vol. 82(1), pages 49-62, September.
    6. Ludema, Rodney D. & Mayda, Anna Maria, 2009. "Do countries free ride on MFN?," Journal of International Economics, Elsevier, vol. 77(2), pages 137-150, April.
    7. Bernhard Herz & Marco Wagner, 2010. "Multilateralism versus Regionalism!?," DEGIT Conference Papers c015_043, DEGIT, Dynamics, Economic Growth, and International Trade.
    8. Limão, Nuno, 2005. "Preferential Trade Agreements as Stumbling Blocks for Multilateral Trade Liberalization: Evidence for the US," CEPR Discussion Papers 4884, C.E.P.R. Discussion Papers.
    9. Nuno Limao, 2006. "Preferential Trade Agreements as Stumbling Blocks for Multilateral Trade Liberalization: Evidence for the United States," American Economic Review, American Economic Association, vol. 96(3), pages 896-914, June.

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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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